Bitcoin Futures: Not As Dead As You Think

On October 24 of this year, Bloomberg Businessweek published an article with the slightly click-baity headline, “Anybody Want Bitcoin Futures? Anybody?” The premise of the piece was that even though trading in bitcoin futures on Cboe was launched in December 2017 with a lot of noise and a torrent of media attention, the results have been somewhat underwhelming.

“Ten months later, some of the hopes for bitcoin futures look more like pipe dreams. Cboe and CME combined traded about 9,000 contracts a day in the third quarter. “It has not been what you would call a roaring success,” says Craig Pirrong, a finance professor at the University of Houston and an expert on futures trading.”

Strangely enough the article goes on to contradict its own headline just a couple of paragraphs later when Michael Unetich, vice president of cryptocurrencies at Chicago-based Trading Technologies International Inc. is quoted: “Bitcoin futures are probably considered statistically one of the more successful products, both out of the gate and with the growth in the first six months.”

But for the sake of argument, I want to leave the article’s internal discrepancies for what they are and focus on what the editors have conveniently left out to support their premise, creating a huge straw man in the process.

Namely: this article somehow manages to completely ignore crypto-centric bitcoin futures trading. For the uninitiated: Cboe and CME use US Dollars as their home currency – traders place their bets in dollars and dollars are what they lose or win. Crypto-centric exchanges – nomen est omen – use crypto’s as their home currency.

This is no small omission: crypto centric futures exchanges have an average daily turnover exceeding 6 billion dollars. Ignoring it would be akin to measuring the global wine industry just by looking at France – great place to start, sure, but you’re going to be missing some volume. Let’s take a look at some of the reasons behind the difference between the sizes of these markets.

According to Bloomberg’s article Cboe and CME combined traded about 9,000 contracts a day in the third quarter. One reason for this modest volume is that these contracts are very pricey compared with to other futures. Users must keep about 40% of the value of the trade in collateral. Compare that to futures in grain where a collateral of only up to 4 percent is required and one begins to understand why traders are not falling over themselves to get on board the bitcoin futures train.

On top of that these exchanges have large ticket sizes, which make the product less attractive for your average crypto joe. This is by design. Fiat-centric Cboe is suitable for specultators: crypto traders that are looking to hedge their positions aren’t being targeted by this product.

In a sense, I can understand why Bloomberg is overlooking the lion share of this market: some of it takes place in grey areas, with companies operating in exotic postal codes with lax oversight. Reliable numbers are a scarce commodity here and it’s much easier to just count Chicago’s daily contracts.

The trend we are seeing is that investors are moving away from the grey area into more regulated environments. Forward thinking crypto-jurisdictions like Malta, Singapore and Gibraltar – where our own crypto-centric-exchange is currently in the process of being regulated – are making this possible. That’s great news for investors who get clarity and transparency. And it’s equally good for journalists at outlets like Bloomberg because it should make reporting on this exciting market way easier.

So, to answers Bloomberg’s own question “Anybody Want bitcoin futures?” the answer should be a resounding “Hell Yeah.” Just not necessarily the ones they’ve been looking at.

Wiktor Gromniak is the CEO and co-founder of Quedex Ltd., a crypto-centric futures and options trading platform registered and in the process of becoming licensed in Gibraltar. He holds a Masters Degree from the University of Warsaw where he studied at the Faculty of Mathematics, Informatics and Mechanics and completed a double degree programme in Economics and Mathematics. Wiktor has emerged as one of the more outspoken and driven new characters in the local Polish fintech scene as well as in London where he worked as a researcher and software engineer as part of collaboration with University College London.